TY - JOUR
T1 - Tests of rationality, neutrality and market efficiency. A Monte Carlo analysis of alternative test statistics
AU - Hoffman, Dennis
AU - Low, Stuart A.
AU - Schlagenhauf, Don E.
PY - 1984/11
Y1 - 1984/11
N2 - This paper examines the small sample properties of three testing strategies used to analyze the rationality, monetary neutrality and market efficiency hypotheses. We focus on the original 'two-step' Barro test of the MRE hypothesis formed entirely from OLS results, a test that employs the correct variance-covariance formulae for these 'two-step' estimates, and Mishkin's FIMLE testing framework. Each test is examined under likely model respecifications. The findings highlight the extensive bias incurred by drawing inferences from simple unadjusted 'two-step' estimates and reveal the relative power of all tests in identifying alternatives to the null hypotheses.
AB - This paper examines the small sample properties of three testing strategies used to analyze the rationality, monetary neutrality and market efficiency hypotheses. We focus on the original 'two-step' Barro test of the MRE hypothesis formed entirely from OLS results, a test that employs the correct variance-covariance formulae for these 'two-step' estimates, and Mishkin's FIMLE testing framework. Each test is examined under likely model respecifications. The findings highlight the extensive bias incurred by drawing inferences from simple unadjusted 'two-step' estimates and reveal the relative power of all tests in identifying alternatives to the null hypotheses.
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U2 - 10.1016/0304-3932(84)90047-3
DO - 10.1016/0304-3932(84)90047-3
M3 - Article
AN - SCOPUS:0040027262
SN - 0304-3932
VL - 14
SP - 339
EP - 363
JO - Journal of Monetary Economics
JF - Journal of Monetary Economics
IS - 3
ER -